Are tiny Home rentals a bad idea?

Question

What's your guys' experience with renting tiny homes? They seem relatively easy to maintain, very efficient, and here in Alaska, I feel like a lot of people try to minimize their footprint and expenses so they can buy more toys. After some quick maths (but I have ~~almost~~ no experience in this), they look like they'd be ~$800/month to finance and maintain. One acre lots are going for as low as $15,000 and a quick google search says that the average cost to build a tiny home is $25,000-$35,000. One bed, one bath <1,000 square feet homes are renting for more than $1,000 a month.

What am I missing here? Tell me, why would this be a bad idea?

I guessed my monthly expenses with a $40,000 20% down loan at 3.65%, 30 years, $1,000 annual tax, $600 annual insurance.

What am I missing here? Tell me, why would this be a bad idea?

I guessed my monthly expenses with a $40,000 20% down loan at 3.65%, 30 years, $1,000 annual tax, $600 annual insurance.

Drew Dim · Answer

Are you wanting short term or long term tenants?  Airbnb type rentals works decent for me near Anchorage BUT our season is pretty much only the summer w occasional one offs.  I already have land w infrastructure going in for another venture and thinking about the tiny house rental on it for a temp light cash making but if you search VRBO/AirbNb for comps you’ll see they aren’t heavy cash makers, mostly due to the smaller season.   It also seems like they rent for maybe $100 per night (but likely less) and occupancy is maybe 75%/80% for a really good year (just my experience over the last few years).

Now the growth of the base up there and housing shortages you may have some long term/ “off season” (non-summer) options, that wouldn’t been a bad thing but w the harsh winters, and likelyhood of cabin fever, is think your market is extremely small and even then, my requirements and checks would wipe out most of those interested.

I wouldn’t waste my VA on it though.  Save that for a quad-plex.

Nathan Gesner · Answer

It may work if the demand is there. The big thing you're missing is infrastructure. You have to get utilities to each home. Will roads be paved or gravel? Fenced yards? Sprinklers? Common areas to maintain or are they all private lots? Just off the top of my head I'm thinking your costs are way low.

I haven't actually crunched your numbers but it sounds like they could cash flow. I just wonder if the demand is there. If you're a new(er) investor, I wouldn't spend much time on it. If there were money to be made in that market, I think the experienced investors would have jumped in already.

Lance Anderson · Answer

@Jamie Rose Good to know, I'm going to take another look.  I see it working well for owner occupied, I would like to figure it out as non owner occupied rental investment.  Maybe I'll give him a call.  Thanks for the info.

Connor Dunham · Answer

Looking at your numbers, conventional financing wouldn't apply. You'd be looking at recreational property or RV financing with interest rates in the 6-7% range. Also, research local codes if building within city limits. By the price you mentioned, I assume this property is in the sticks somewhere. Even that comes with headaches like drilling a well, testing it with your fingers crossed, dealing with waste, and paying for a new electric service. Additionally, the price you mentioned doesn't include labor. Quite a few more factors than you're figuring in your numbers. I would assume 70-100 thousand as a bare minimum to purchase something on land with utilities hooked up.

Andrew Cornstubble · Answer

@Koby Lund Carter  Go to a camper lot and ask the people there whow much they like living in a camper.

But, it could work in your area.  I don't think you'd lose much money if you gamble with one.  You still have the land and you can just haul the house off.

Trenton Miller · Answer

What I would start with asking myself is what are all of my expenses associated with this venture.  I would research the BP 4 Square Chart.  This is a tool that is used to quickly analyze profitable deals just like the one you have described.

Keep in mind; A large majority of lenders are hesitant, or will not, lend money on land, let alone construction costs associated with a "tiny" home.

If you were considering using a VA loan (based on your profile picture) forget it.  VA Loans must be used for primary residences and there is zero leeway.

If you have any question or would like help crunching some numbers send me a PM.  Vet to vet I would love to help you any way I can!

Jamie Rose · Answer

@Lance Anderson - hi Lance - before Dennis Byler took that detached quad to the peninsula he built a bunch of them in the Valley - (Wasilla area primarily) - they can be great cash flow purchases - you just have to use your head and buy in a decent area. My best friend bought and lives in one - lives for free using a nearly no down loan HUD184 - and makes a couple hundred in cash flow while living in a brand new detached home with garage... if anyone thinks that isn't a sweet opportunity... they're not on the road system in Alaska at least...

Lance Anderson · Answer

Have you seen these "detached" fourplexes that have been going up the last several years on the Kenai.  Basically 4 small houses on an acre.  The build price is high.  They use shared well and septics but four separate building is expensive. Four roofs, 16 exterior walls, four driveways, etc. etc.  I have not been able to get the numbers to work.  These are typically sold owner occupied and I know of two cases that did not end well because the owner was not willing to learn or capable of proper management.

I wish I could figure it out, I love the concept, but we are $150/foot basic type structure-builder grade.   Building multiple of the same structure at once I can get the cost down somewhat but not enough.

On the Airbnb/short term side.  I have been looking at this lately, but our season is so short here on the Kenai that the numbers are really tight.  I know of some people that are successful with it, but those are very attractive properties for Kenai Vacationers (river front) that sort of thing.

Lance

Are tiny Home rentals a bad idea?

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